Our problem is to choose the level of activities that will maximize or minimize our performance measure. Constraints: are restrictions on activity levels. – Resource limitations – Resource requirements – Accounting identities Shadow Price: is the change in the objection function result associated with one unit increase in
the right hand final value for a constraint. Porter’s five competitive forces ： Threat of new entrants Threat of substitutes Bargaining power of buyers Bargaining power of suppliers Intensity of rivalry Barriers to entry can result from: – Absolute cost advantages (in procuring inputs or being able to use technology) – Extreme product differentiation (with very loyal customers) – Scale or size economies – Large capital requirements – Legal exclusion of competitors (… public utilities, patents, exclusive licensing agreements) – Trade secrets Pure competition : P=MC=MR Demand curve is flat for perfectly competitive firm: The firm is a price taker. Its actions do not affect market output price. Is negatively sloped for a monopolistically competitive firm: The demand curve has negative slope, but is highly elastic because there are many close substitutes. And as the price makers,
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- Spring '14